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Obamacare’s Individual Market Still Losing Money

Health insurers continued to lose money in the individual market in 2016, but they’ll
lose less than the $4.5 billion they lost in 2015.

For 2017, S&P Global Ratings forecasts "closer to break-even results” for the individual
market after what the financial ratings company called a one-time pricing correction
under the Affordable Care Act. But most insurers will remain below their target profitability
levels next year, and more premium increases—albeit well below the average 2017 exchange
hike of 25 percent—can be expected for 2018.

Significant uncertainty remains for the individual market in 2018 as Republicans,
who will control Congress and the White House in 2017, ready plans to repeal and replace
Obamacare, S&P Global Ratings said in a report released Dec. 22. But the viability
of the individual market will continue to be important for millions of Americans who
aren’t old enough to be in Medicare or who don’t have employer-sponsored insurance,
and the findings were somewhat optimistic that the market will stabilize.

Individual Market Important for Millions

“No matter what happens, the individual market is going to be a really important place
for millions of people to get health care,” Katherine Hempstead, a senior adviser
at the Robert Wood Johnson Foundation, told Bloomberg BNA Dec. 23. The foundation
is a health-care philanthropy that has been supportive of the ACA.

“There are some structural problems with the market, like the special enrollment periods
and the risk adjustment, that need to be addressed by policy makers,”
Hempstead said. “But at the same time the supply side is making continual adjustments
in the products that they’re offering.”

The individual health insurance market has struggled since the Obamacare exchanges
opened in 2014, when aggregate losses for plans both on and off the exchanges topped
$3 billion, according to the S&P Global Ratings report. Higher-than-expected claims,
aggressive pricing by some to gain share in the new marketplace and regulatory changes
made after insurers had priced their premiums contributed to the losses, the report
said.

Losses intensified for the industry in 2015, the report said. Insurers had to file
rate requests for 2015 before they had enough market experience from 2014 to predict
claims costs, and a shortfall of close to $8 billion from the ACA risk corridor program
in 2014 and 2015 contributed to those losses, it said.

2016 Losses Less Than in 2015

In 2016 most insurers increased premiums and several introduced narrower networks
to control medical costs, S&P Global Ratings said. As a result 2016 losses are expected
to be lower than in 2015 and 2014, it said.

Even with high premium increases in 2017, “It will take another year or two of continued
improvements” to get to target profitability levels, S&P Global Ratings said.

The report focused on 32 Blue Cross Blue Shield (BCBS) companies, excluding the for-profit
Blue plans that are part of the publicly traded Anthem Inc. group. Blues plans have
leading shares of their local individual markets and are participating on and off
the ACA marketplaces, it said.

The BCBS plans had medical loss ratios (MLRs) of about 90 percent for the first three
quarters of 2016, compared with 103 percent for the first three quarters of 2015,
Deep Banerjee, a director of S&P Global Ratings, told Bloomberg BNA Dec. 23. The medical
loss ratio is the share of premiums that a company spends on claims. The 90 percent
MLR level is expected to be a loss when administrative expenses are factored in, the
report said.

“Although we assume that any legislative changes to the ACA law will not affect the
insurance market in 2017, insurers didn’t price for repeal,” the report said. “So,
if the uncertainty around the future of healthcare affects consumer behavior such
that it is contrary to pricing expectations, then 2017 results may be weaker than
we expect.”

Plans Still Too Expensive for Many

Even if the ACA exchange markets reach stability, the plans still may be too expensive
for many consumers who don’t receive government subsidies, Robert Laszewski, president
of health policy and marketplace consulting firm Health Policy and Strategy Associates
LLC, told Bloomberg BNA in an e-mail Dec. 23. Under the ACA people with incomes between
100 percent and 400 percent of the federal poverty level are eligible for subsidies
to buy exchange plans.

"`Stability’ would include plans typically costing $1,000 to $1,400 a month with deductibles
of $8,000 for the cheapest Bronze plan and still only about 40 percent of the eligible
signing up,” said Laszewski, who has been critical of the ACA. “What S&P is talking
about might be financially sustainable for insurers but not for consumers. And that
would never be politically sustainable.”

“Financing of health care in the future will be different from the way it’s done today,”
Banerjee said. ACA subsidies are linked to premium costs. The individual health insurance
market may move to a defined contribution system, in which the government provides
fixed-dollar vouchers to consumers who can decide how to use the money to pay for
their health care, he said.

To contact the reporter on this story: Sara Hansard in Washington at
shansard@bna.com

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